Thursday, January 22, 2009

What is the accounting treatment of legal fees incurred by a company relating to a stock issuance?

Answer:

A company will use the share capital account to record these fees. The initial measurement of share capital reflects the net proceeds from issue, defined as the FMV of the consideration received.

This is all calculated net of transaction costs directly attributable to the equity transaction. All of this conforms to accounting regulation IAS32R.35. On the other hand, shares of company stock that are issued for cash are recognized at the amount of the net cash proceeds.